Part Time Help in Your Tax and Accounting Practices – Independent Contractor or Employee?
The new year will be here before you know it. There will be a new tax season and new accounting challenges. Are you planning to hire part-time staff? You may be looking for a student to help prepare tax returns or to do tax-related research. You may want to take on a semi-retired CPA or EA to rent space in exchange for in-office services or to service your clients at their place of business. This professional may have his or her own client base and is looking for a few hours a week behind that empty desk in your office. Are you thinking of treating these part-timers as independent contractors? Will it work? How can you find out where you stand on this issue?
Defining An “Employee” Under The UI Code.
It’s standard operating procedure to begin your search for answers by first looking to the UI Code. If you have been following my articles in Spidell this year, you may have become confused with all of the “legalese” in the code and regulations. The definition of an employee is set forth in UIC §§621(a) and (b), and 13004. According to §621(a) and (b), an employee is:
“(a) Any officer of a corporation.
(b) Any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee.”
The definition set forth in §621(b) is not much help. UIC §13004 does not really give us any more information. It states that an “employee” means a resident or a non-resident individual who receives remuneration for services performed within this state, including an officer of a corporation.
Is there another place we can go to get “hands-on” guidance for your tax and accounting practices? Yes.
Precedent Decision P-T-404
Whenever I am confronted by how the EDD will treat workers in a specific industry or profession, I look to see if there is an administrative “precedent decision.” What does this mean? Occasionally the California Unemployment Insurance Appeals Board (Board) decides a case that they deem important enough to be labeled “precedent.” A Board “precedent decision” is binding on the EDD as well as an administrative law judge (ALJ) much the same way as a trial judge is bound by a decision of a supreme court. A Board “precedent decision” has the symbol “P-T” before the case number.
In the tax and accounting profession we are in luck. There is P-T-404 decided in 1963. Do not let the age of the case fool you into thinking it does not apply in the age of Blackberrys and Wi-Fi; it applies. This is a case you need to read if you are planning on hiring any kind of professional or clerical part-time help. You can find the case by going to the California Unemployment Insurance Appeals Board (CUIAB) website and clicking on “precedent decisions.” You will find them listed by case number.
P-T-404 cites several examples of part-time tax and accounting help ranging from in-office and in-home clerical help to semi-retired licensed professionals looking to keep busy and keep up their professional skills at the same time.
P-T-404 Case Studies:
P-T-404 decided the worker status of several individuals who worked for a CPA both at his office and at the business establishments of firm clients. Each example was discussed by the worker’s name. Let’s look at a few of them:
Gilbert: Gilbert had been a licensed public accountant (PA) for about 13 years. He had his own independent office and clientele. He handled monthly write-ups, payroll issues, and prepared quarterly payroll and sales tax returns for firm clients. Gilbert performed his work “off-site,” at clients’ business locations. He was not supervised by the CPA firm owner, although his work was reviewed before it was presented to the client or filed with a specific taxing agency. Gilbert made his own hours and worked between 8-1/2 and 28 hours per month. He used his own car, and he was not reimbursed for mileage, fuel, meals, or any other expenses. The CPA firm treated him as an independent contractor.
Walter: Walter had been a licensed public accountant (PA) for many years. He was 69 years of age and semi-retired. He had a few clients and friends he serviced. He rented a desk at the CPA firm and paid his rent and related expenses by servicing firm clients, as well as his own. He worked about 80 hours per month. He kept no set schedule. He was engaged by the CPA firm to do specific jobs, generally at the place of business of firm clients where the necessary records were kept. He was paid on an hourly basis. Walter kept a day-book record of the time he spent on firm clients, but he worked without supervision only to have his final work product reviewed before it was presented to a CPA firm client. He used his own car, and he was not reimbursed for mileage, fuel, meals, or any other expenses. The CPA firm treated him as an independent contractor.
In the examples of Gilbert and Walter, the Board ruled that they were independent contractor. They were licensed professionals needing no supervision. The CPA firm was interested only in the end results they achieved. They were not reimbursed for out-of-pocket expenses and were not given a company car or a mileage allowance.
Carolyn: Carolyn was a student who worked in the CPA firm’s office helping with secretarial and general office work. Her work was seasonal. The CPA firm treated her as an independent contractor.
Mary: Mary was engaged by the CPA firm to do clerical work relating to specific clients at the clients’ places of business. She was not an accountant, never had an independent office, and never advertised for work. She worked without supervision and reported infrequently to the CPA firm. Each client supplied her workspace and her materials. The CPA firm treated her as an independent contractor.
The Board ruled that both Carolyn and Mary should have been treated as employees of the CPA firm. Even though they were not supervised, their skill levels were not high when compared to Walter and Gilbert who were licensed public accountants.
Additional Board Rulings in Part-Time Tax and Accounting Cases
Precedent decision P-T-404 is important, but there are examples it does cover. It does not address part-time seasonal help preparing tax returns. It does not deal with practitioners who operate bookkeeping services and want to hire part-time in-office or in-home help. It does not cover part-time help hired to do computer-related work nor does it cover students hired to do tax/legal research.
There are several significant non-precedent decisions you need to know that will guide you in your treatment of part-time tax and accounting help in your office. Non-precedent decisions offer useful guidance to the EDD and ALJs. You need to know them.
Case Number T-70-52: Accountants who prepare income tax returns in a practitioner’s office during tax season where held by the Board to be employees because their services were terminable at will, the practitioner-owner furnished office space, a receptionist, and required that reports be made on a daily basis. The preparers were also paid on a daily basis.
Case Number T-70-7: The employer operated a bookkeeping and tax service. He hired individuals to prepare returns and to do bookkeeping and computer services. The workers were held by the Board to be employees.
Case Number T-69-45: A part-time bookkeeper, performing bookkeeping services in her home was held by the Board to be an employee because she worked exclusively for one employer and she was paid a monthly salary.
Case Number T-83-76: Part-time word processors who were paid on an agreed hourly rate and worked on the business premises after regular working hours without supervision held by the Board to be independent contractors. On the other hand, word processors hired for short-term work on a specific project were held by the Board to be employees (Case Number T-84-339).
Case Number T-88-109: Individuals performing various services for an attorney at his place of business during regular business hours, who were not in business for themselves, were held by the Board to be employees.
Case Number T-89-99: A law student paid by the hour, doing research under the control and supervision of a licensed attorney was held by the Board to be an employee.
Whenever the Board seeks to decide a worker-status case involving the issue of employee versus independent contractor, the most important factors have always been the skill level of the worker and the right to control that worker. This is defined as the right to exercise control over the worker’s manner, mode, methods, and means of doing his or her work. Whether the control is actually exercised is of secondary importance (See Empire Star Mines Company, Ltd. v. California Employment Commission (1946), 28 Cal. 2d 33).
The more education and recognized skill-level the worker has will move him or her farther away from being an employee. In other words, a CPA or EA working unsupervised is more likely to be an independent contractor when compared with a graduate student working on his or her masters degree in business or taxation. Clerical workers can be counted on to be treated by the EDD as employees, regardless of whether or not they work at the client’s place of business or in-home. The waters are far from being clear. Being careful, applying P-T-404 to today’s internet world, and studying the other administrative cases cited will prevent you from making a potentially costly mistake.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.